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Tuesday, June 20, 2017

Cattle spread snapshot

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • Queensland Feeder Steers are the only class of cattle to register a percentage spread level above the normal midpoint spread level that could be expected for this time of the season.
  • Victorian Heavy Steers, NSW Heavy Steers and QLD Trade Steers are the three categories of cattle registering a percentage spread furthest below their normal midpoint spread level for this time of the year.

2017-06-20 Cattle Fig 1

2017-06-20 Cattle Fig 2

It should be no surprise, given where we currently sit in the herd rebuild phase, that young/store cattle continue to outperform heavier finished lines in a broad sense. However, this article aims to provide a more detailed snapshot summary of where a wide selection of cattle prices, across multiple states, currently stand in relation to the Eastern Young Cattle Indicator (EYCI) on a percentage spread basis.

Figure 1 provides a summary of percentage spread to the EYCI for a range of categories of cattle according to the MLA reported closing prices as at the week ending 16th June. The chart highlights where the spread ended the week (orange dash) in comparison to the “normal” spread range for this week in the season, as identified by the green column. This range shows where the spread has fluctuated for 70% of the time over the last decade for this time of the year and includes a range midpoint, that gives a visual indication how far away from normal the current percentage spread calculations are.

Queensland Feeder steers are the only category of cattle to register a weekly percentage spread close above the respective midpoint, albeit only marginal, with a spread discount to the EYCI of 2.3% compared to the spread discount midpoint of 2.8%. Just over half of the cattle types displayed registered a spread calculation within the 70% range, with the remainder posting a spread below the bottom of the usual range for this week in the season.

Figure 2 gives a clearer indication of how each category of cattle* is performing compared to their respective midpoint, in percentage points. It shows that, as at the price close from last week, the Victorian Heavy Steer spread discount to the EYCI of 13.2% was 13.1 percentage points below the spread discount midpoint of 0.1%. Not far off Victorian Heavy Steers were NSW Heavy Steers and QLD Trade Steers both 12.9 percentage points below their respective mid points, while Victorian Medium Steers registered a gap of 12 percentage points below the mid-point.

*There were no closing prices for SA Trade Steers, Heavy Steers and Medium Cow for the week ending 16th June.

Link to Processor Margins article here

What does this mean?

As the most recent Mecardo processor margin cut out model (see link above) highlighted there was some improvement noted during May for processor margins. This, along with the normal seasonal price improvements seen during Winter for heavier cattle, should be supportive for finished cattle prices in the coming month.

Indeed, as the heavy steer spread range reinforces, it is not uncommon to see a narrowing of the discount spread of heavy steers to the EYCI during winter. Given where the current spread sits at the moment, particularly for NSW and Victorian Heavy Steers, it suggests there is more room for the spread to narrow in the coming few weeks than to widen further, which also supports the case for improved finished steer prices. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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